5 Tips for creating an excellent lease agreement

A lease agreement is the basic grounding for probably the single largest monthly transaction that a tenant will make, says Louw Liebenberg, CEO of rental transactions processor, PayProp. “It’s critical to the smooth running of any tenant-landlord relationship that the lease is properly constructed and legally correct.”

Liebenberg says that hundreds of signed lease agreements pass his desk monthly and he’s shocked by the language, format, terms and structure of many lease agreements. “You’re entering into a binding contract with your tenant/landlord/agent, and these agreements should be carefully considered before signing.”

Liebenberg gives 5 pointers to look out for when constructing or signing a lease agreement:

1. No additions or modifications outside of the lease
It is always best practise to not only reduce leases to writing (in fact the Rental Housing Amendment Bill is proposing to legislate that this has to be done in all circumstances) – but to ensure that the lease is clear about the fact that no additions or modifications to the agreement can be made outside of the lease. Typically look for a clause that insists that any deviation from the terms should be agreed to by all parties in writing – otherwise you end up in a situation where ad-hoc changes are made verbally which bind all parties.

2. Leases are subject to national legislation
It is important to understand that leases are subject to national legislation and that consumers cannot contract out of the basic rights that are assigned to them by law. A landlord cannot, for example, put in the lease that should the tenant not pay that water can be cut off or that doors are to be removed. Even if the tenant signs such a lease it remains illegal for the landlord to do these things as they go against the basic principles established in the rental housing act.

3. Don’t underestimate the Consumer Protection Act
It is important to understand the influence of prevailing legislation on the commercial terms of leases. One of the most important in this regard is the right granted to the consumer by the Consumer Protection Act (CPA) to cancel a lease agreement with 20 business days’ notice. The landlord may, however, specify a reasonable penalty should the tenant cancel the lease before the end of its term, but the landlord needs to show that the penalty was reasonable. Our advice in this regard is to make sure that any lease has a section that deals with CPA cancellation and that specifies how the penalty will be calculated and what the minimum and maximum values of such a penalty could be.

4. ‘Cooling off period’
Another interesting cancellation right to be aware of is the, consumers right to a penalty free cancellation within 5 days of signing a lease if the agreement was the result of direct marketing. In other words, if the agency approached the tenant directly (via e-mail campaigns, home drops, telephone calls or SMS’s) and that the agreement was the result of this direct marketing, that the tenant has a five day ‘cooling off period’

5. Owners are also consumers
Agents will do well to remember that the owners whom they contract with via mandate are also consumers and that they therefore also have the same rights to cancellation as the tenant. An owner can cancel a mandate with 20 business days’ notice and if the agent has not been clear about the penalties that apply in such a situation, could end up being severely out of pocket. It is therefore important that agencies not just place tenants on ‘handshake agreements” with landlords, but that they employ the same contractual diligence with mandates that they do with leases

Liebenberg says that the Privacy of Personal Information (POPI) Act is also pertinent to the construction of a lease as it impacts the way that agents collect, store and manage information of tenants and landlords. “The agency cannot, for example, perform a credit check without the written permission of the tenant or share the report with the owner of the property unless the tenant gives explicit permission.”

PayProp offers all customers access to free lease agreements, as well as other legal documents to assist with avoiding the complications around the incorrect drafting of these vital documents.